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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद �यायपीठ आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण अहमदाबाद �यायपीठ अहमदाबाद �यायपीठ ‘A’ अहमदाबाद। अहमदाबाद �यायपीठ अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD (Conducted Through Virtual Court) ] ] BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.90/Ahd/2019 Assessment Year : 2012-13 JCIT, Cir.3(1)(2) Shri Rajkamal Builders Ahmedabad. Vs Infrastructure P.Ltd. PAN : AABCR 0326 A 54, Park Hill, Nr.Heaven Park Ramdevnagar Ahmedabad 380 015. अपीलाथ�/ (Appellant) �त् यथ�/ (Respondent) Assessee by : Shri M.K. Patel, AR Revenue by : Shri Vijay Kumar, Jaiswal,CIT- DR सुनवाई क� तार�ख/Date of Hearing : 19/05/2022 घोषणा क� तार�ख /Date of Pronouncement: 8/06/2022 आदेश/O R D E R PER WASEEM AHMED, ACCOUNANT MEMBER: This is Revenue’s appeal against the order of ld.CIT(A)-9, Ahmedabad dated 19.11.2018 vide which the ld.CIT(A) has deleted penalty of Rs.1,05,74,312/- imposed under section 271(1)(c) of the Income Tax Act, 1961 ("the Act" for short) for the Asst.Year 2012-13.
Sole ground raised by the Revenue reads as under: “1. The ld.CIT(A) has erred in law and on facts in deleting the penalty of Rs.1,05,74,312/- imposed u/s.271(1)(c) of the Act on issue of disallowance of losses set off & deduction under section 80IA of the Act of Rs.3,11,10,071/-.”
2 ITA No.90/ahd/2019 3. The necessary facts of the case are that the assessee in the present case is a private limited company and engaged in the business of construction and infrastructural development. The assessment under section 143(3) of the Act was framed by the AO vide order dated 31December 2014 after making, inter-alia, various addition/disallowances including the following:
i) Set off of losses while claiming dedn.u/s.80IA amounting to Rs.2,88,61,452/-;
ii) Disallowance of claim of dedn. u/s.80IA amount to Rs.22,48,619/-
The AO in respect of the above additions/disallowances initiated the penalty proceedings by issuing notice under section 274 read with section 271(1)(c) of the Act dated 22nd February 2018. The assessee in response to such notice vide letter dated 5th of March 2018 submitted that the issue relating to the deduction under section 80- IA of the Act is highly debatable. Therefore, if such deduction is restricted or disallowed during the assessment proceedings, the assessee cannot be alleged to have furnished inaccurate particulars of income.
The assessee also submitted that similar penalty was also levied under section 271(1)(c) of the Act in the assessment years 2009-10, 2010-11 and 2011-12 which were subsequently deleted by the learned CIT-A. Thus it was contended by the assessee that there cannot be any penalty on the above additions/disallowances made during the assessment proceedings. However the AO disagreed with the contention of the assessee by observing that had there not been any scrutiny assessment, then the assessee would have claimed the deduction under section 80-IA of the Act on the amount for which it was not entitled. According to the AO, the assessee has claimed higher amount of deduction under section 80 IA of the Act by furnishing
3 ITA No.90/ahd/2019 inaccurate particular of income. Accordingly the AO levied the penalty of Rs.1,05,74,312.00 being hundred percent of the amount of tax sought to be evaded on the allegation that the assessee has furnished inaccurate particular of income.
The aggrieved assessee preferred an appeal to the learned CIT-A who deleted the penalty levied by the AO by observing: “5. It is seen from the order of penalty that the AO has imposed penalty of Rs.1,05,7,312/- u/s.271(1)(c) of the Act. The AO has levied penalty on disallowance/ addition of Rs.3,11,10,071/- on account of rejection of claim of deduction u/s.80IA of the Act. CIT(A) vide order No.ClT(A)-9/11070/DCIT.Cir.3(1)(2)/2016-17 dtd.6/12/2017 allowed the appeal of the appellant on this issue. It is noticed that for the A.Yrs.2009-10 & 2011-12, the similar issue came up for appeal of the same appellant with regard to penalty proceedings. The issues regarding disallowance of claim of deduction u/s.80IA for A.Y. 2009-10 & A.Y. 2011-12 are the same. The issue of imposition of penalty for disallowance of claim of deduction u/s.80IA is a subject matter of debate. The debate is between whether the appellant is a contractor or developer or not. There are judgments with regard to categorization of a particular assessee as a contractor or a developer and the basis of the same. It is apparent from penalty order that A.Q. has not accepted the claim made by the appellant for claiming deduction u/s.80IA of the Act. Hon'ble Supreme Court has held in the decision of Reliance Petroproducts P.Ltd. 322 ITR 158 that legislature did not intend to impose penalty on every assessee whose claim was rejected by the A.O. For this, what is sought to be covered u/s.271(1)(c) is as to whether it has concealed particulars of its income or furnished inaccurate particulars of income and not making of a untenable claim. Relying on the order of Hon'ble Supreme Court in the case of Reliance Petroproducts P.Ltd. (supra), I arn of the considered opinion that rejection of claim by the A.O. cannot invite penalty u/s.271(1)(c) of the Act. Thus, penalty imposed u/s.271(1)(c) of the Act on disallowance of claim of deduction of Rs.3,11,10,071/- u/s.80IA of the Act is hereby cancelled.”
Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
4 ITA No.90/ahd/2019 8. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the assessee has not set off the losses incurred with respect to the units eligible for deduction under section 80 IA of the Act against the profits of the units eligible for deduction under section 80 IA of the Act. Thus, the assessee in this process has claimed higher amount of deduction by the amount of Rs. 2,88,61,452 only. Likewise, the assessee has also claimed deduction under section 80IA(4)of the Act amounting to Rs. 22,48,619.00 with respect to the works contract which was not eligible by virtue of the explanation to section 80 IA of the Act. In effect, the assessee claimed higher amount of deduction under section 80IA (4) of the Act aggregating to the amount of Rs.3,11,10,071.00 which was rejected by the AO and confirmed by the learned CIT-A.
At the outset, we note that the quantum additions/ disallowance in respect of which the penalty was levied by the AO have been deleted by the ITAT in ITA No. 1281 /AHD/2016 vide order dated 13 May 2022. Finding of the ITAT with respect to the setting off the losses incurred with respect to the units eligible for deduction under section 80 IA of the Act against the profit of the units eligible for deduction under section 80 IA of the Act: “50. Now we deal with third common issue viz. the Revenue authorities are erred in setting off loss of four infrastructure facilities from the profits of other infrastructure facilities despite having legal provisions that deduction should be allowed on standalone basis. This common issue is raised for the Asst.Year 2007-08 to 2013-14 and 2015-16 & 2016-17. 51. In Assessment Year 2007-08 the Ld AO disallowed the entire claim of deduction under 80 IA of the Act to the tune of Rs. 67, 23, 899 due to the reason that the appellant has not considered and setting off loss from 8 projects while calculating deduction under chapter VIA of the Act.
We have heard the respective submissions made by the parties; we have also perused the relevant materials available on record. It
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appears that while rejecting the claim of the assessee the Ld. AO observed as follows:
“3.1 On perusal of above chart, it is seen that the assessee has earned profit in 16 sites aggregating to Rs.3,47,48,215/- which has been claimed as deduction u/s.80IA. however, this claim has been made without considering and setting off loss from 8 sites aggregating Rs.67,23,899/-. As per the provisions of Section 80A(2) r.w. section 80B(5) as well as the ratio of decision laid down by Hon'ble Supreme Court in the case of Synco Industries Ltd. Vs. Assessing Officer (IT) & Another, (2008) 299 ITR 444 (SC), in order to claim the deduction under Chapter-VI-A, first of all the gross total income is to be worked out and this has to be worked out after setting-off loss in one unit /division against profit of another unit and thereafter the gross total income is to be worked out for working of deduction u/s.80-IA of the Act. In the case of the assessee, this exercise has not been done. Therefore, the loss of Rs.67,23,899/- in 8 sites, as mentioned above, is first of all to be set-off against the profits of 16 sites, in order to arrive, at eligible amount of deduction U/S.80-IA. The assessee has claimed 80-IA deduction on profits of various sites, per se, but not set-off the losses. Hence, to the extent of Rs.67,23,899/- of 8 sites, deduction U/S.80-IA is not allowed. Disallowance on this core works out to Rs.67,23,899/-. Penalty proceedings u/s.271(1)(c) of the Act are initiated separately for furnishing inaccurate particulars of income.”
However, the case of the assessee is this that the deduction was to be calculated on standalone unit basis. In fact as per section 80 IA(5) the quantum of deduction is to be computed as if the eligible business is the only source of income and therefore, the deduction is to be computed unit wise without considering or set off of loss of other eligible units. On this aspect the Ld. AR relied upon the judgement passed by the jurisdictional High Court in the case of PCIT versus Nirma Ltd, passed in ITA No. 360 of 2016.
We have carefully considered the said judgement passed by the Hon’ble jurisdictional High Court. While dealing with this particular aspect of the matter the Hon’ble Court was pleased to observed as follows:
“5. In the case of Commissioner of Income tax(Central) Madras vs. Canara Workshops P.Ltd. Reported in 161 ITR 320, in the context of deductions provided under section 80E of the Act, the Supreme Court held that the merit earned by one industry not to be lost or diminished for loss by some other industry when assessee was carrying on two priority industries. It was held that loss in one industry is not to be set off against profits from the other and the deduction would be on the whole profits from the profit making
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industry. It was held that in the application of section 80E, profits and gains earned by one priority industry cannot be reduced by loss suffered by another industry owned by the assessee. Each industry must be considered on its own working, while adjudging its claim to the deduction under section 80E.
In this context, Allahabad High Court in the case of Commissioner of Income-Tax and another vs. Modi Xerox Ltd. (supra) found that the assessee was a multi-unit company carrying on three different activities and had three separate units for such activities. Two of these units were profit making units and the third was a loss making unit. Qua the profit making unit, the assessee had claimed deduction under section 80HH and 80I of the Act. With this background, it was held and observed as under: "37. We have considered the facts and circumstances of the present case and the law laid down by the apex court and the decision of the Delhi High Court referred hereinabove. It is not the case of the assessing authority that the gross income of the company was nil. From a perusal of the income disclosed to all the three units it appears that the gross income was not nil and therefore, the assessee was eligible to claim the deduction under sections 80HH and 80-I of the Act. After becoming eligible to claim the deduction, the question for consideration is that whether deduction is eligible to the income derived to each industrial undertaking independently or on a consideration of losses suffered by the service unit. Sections 80HH and 80-I of the Act contemplate the deduction from the income derived by the undertaking. The Commissioner of Income- tax (Appeals) has rightly held that income of the undertaking shall be calculated on a consideration of an unabsorbed business losses, etc. in respect of each individual unit and thereafter on the profit derived by the unit the deduction is to be allowed. This view of the Commissioner of Income-tax (Appeals) confirmed by the Tribunal is in accordance to provisions of the Act as well as in consonance with the law laid down by the apex court and the Delhi High Court. The apex court in the case of SyncoIndustries Ltd. vs. Assessing Officer (Income- tax)(2008) ITR 444(SC) has held that the non obstante clause appearing in section 80-I(6) of the Act is applicable only to the quantum of deduction, whereas the gross total income under section 80B(5) which is also referred to in section 80-I(1) of the Act is required to be computed in the manner provided under the Act which pre- supposes that the gross total income shall be arrived at after adjusting
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the losses of the other division against the profits derived from an industrial undertaking. The apex court further held that under section 80-I(6) of the Act for the purposes of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) of the Act contemplates that only the profits shall be taken into account as if it was the only source of income. Therefore, from the decision of the apex court, two principles of law emerge one for the purposes of computation of gross total income the losses of other units are to be taken into account but for the purposes of calculating the deduction of industrial undertaking, the loss sustained in another unit cannot be taken into account and only the profit shall be taken into account as if it was the only source of income of that unit. In this view of the matter, we are of the view that there is no error in the order of the Tribunal."
We respectfully agree with the view expressed by Allahabad High Court. This view is not in conflict with the decision of the Supreme Court in the case of Synco Industries Ltd. (supra). In such case, it was found that the assessee had two industrial units namely, one in oil and another in chemicals. The assessee was making profits in chemical unit but incurring losses in oil unit. In this background, it was held that while computing gross total income, income should include both profit in chemical unit and loss in oil unit. If the result thereafter is nil, the assessee cannot get benefit of special deductions under section 80HH and 80I etc. In the context of computation of deduction under section 80I, the Supreme Court observed that while computing quantum of deduction under section 80I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial unit as the only source of income in order to arrive at a deductions under chapter VI. It was further observed that section 80I(6)deals with actual computation of deduction whereas section 80I deals with treatment to be given to such deductions in order to arrive at total income of the assessee and therefore, while interpreting section 80I(1) as also the gross total income, one has to read expression "gross total income" as defined under section 80B(5). It was therefore,concluded that the loss from oil division was required to be adjusted before determining gross total income and as gross total income was nil, the assessee was not entitled to claim deduction under sections 80I(6) which includes section 80I also.
This judgment nowhere provides that while computing the deduction under section 80HH or 80I or any other similar provision, loss of another unit is first to be set off. It only provides
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and in fact, reinforces that such deduction has to be computed as if the unit was an isolated industry. However, thereafter while computing gross total income, even the loss has to be accounted for and only if the income is positive, can the assessee claim deduction for its profit making eligible industry. This is how even this Court in the judgment in the case of Synco Industries (supra) had used or viewed or situation as can be seen from the following portion of the judgment referring the judgment in the case of Canara Workshop (supra).
"The Hon'ble Supreme Court has further held that the object of section 80E was properly served only by confining the application of the provisions of that section to the profits and gains of a "single industry". In the present case, under section 80I(6), profit of Badi unit are required to be treated as if that was the only source of income. That the losses from the Daman unit are required to be ignored.
Therefore, while calculating quantum of deduction, profit of the Badi unit alone are required to be taken. To that there is no difficulty. However, after calculating the deduction on the basis that the profits from the Baddi unit was the only source of income, one has to give effect to the computed deduction in order to arrive at the total income of the company and while giving effect, one has to consider the provisions of section 80IA and 80IB of the Act. In other words, while considering the gross total income of the assessee, deduction under section 80IA and 80IB of the Act are required to be allowed after adjusting loss worked out in other units."
We therefore, do not find any error in the view expressed by the Tribunal following the decision of the Allahabad High Court. Tax Appeal is therefore, dismissed.”
We have further considered the judgement passed by the Mumbai Bench in the case of Punit construction company, reported in 92 taxmann.com 28(Mum. Tri) wherein it has been specifically decided that in terms of provisions of sub Section 5 of Section 80 IA, deduction has to be given unit wise without considering profit or loss of other eligible units. In that view of the matter respectfully relying upon the same we allow this ground of appeal preferred by the assessee with the direction upon the AO to grant relief to the assessee only on the profitmaking unit without setting off loss suffered by other eligible units. Thus, this ground of appeal preferred by the assessee is allowed.”
Finding of the ITAT whether the assessee is acting as a works contractor or developer reads as under:
9 ITA No.90/ahd/2019 “43. In the light of the above discussion and perusal of various clauses of Tender documents and case laws relied upon by both the parties, it reveals that the tender work under consideration are not for a specific work, rather they are for development facility as a whole. The responsibility is fully assigned to the developer for execution and completion of the work. Various stipulations contained in the Tender documents demonstrate various risks undertaken by the assessee for execution of the project work awarded by the competent authority in terms of financial resources, manpower deployment, both technical and administrative expertise, drawing and designing of the project specifications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because if some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will deprive the assessee from claiming deduction u/s.80IA(4) of the Act. As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under section 80IA(4) of the Act. Thus, the issue of claim of deduction under section 80IA(4) of the Act is allowed in favour of the assesee and against the Revenue. This common ground raised in all the appeals are accordingly disposed of. 44. Second common issue raised in the appeals of the assessee viz. appeals for the Asst. Years 2004-05, 2005-06, 2007-08 to 2010-11 and 2012-13 to 2016-17 is that denial of claim of deduction under section 80IA of the Act on interest and other income. For adjudication of this issue, we take fact from the Asstt.Year 2004-05 which are common in all these years except quantum.”
In the light of the above discussion, there remains no ambiguity that the additions on the basis of which the penalty was levied upon the assessee by the AO has ceased to exist. In other words, the quantum additions made by the AO were deleted by the ITAT as reproduced above. Thus, the question of concealment of income does not arise and therefore the penalty cannot be sustained. Under the provisions of section 271(1)© of the Act the amount of penalty has been specified which shall not be less than hundred percent of the amount of tax sought to be evaded subject to the maximum limit of 300% of such amount. Under explanation 4 to section 271(1)© of the Act, the manner for quantifying the amount of tax sought to be evaded
10 ITA No.90/ahd/2019 has been specified which has direct nexus with the additions/ disallowances made during the quantum proceedings. Therefore, where the quantum additions/disallowances have been deleted, then the manner of quantifying the amount of penalty under explanation 4 to section 271(1)© of the Act as discussed above fails. Accordingly, we are of the view that that there cannot be any penalty with respect to the quantum additions which have been deleted by the authorities whether on merit or on technical grounds.
Before parting, it is also important to note that the ITAT in the own case of the assessee in different assessment years bearing ITA Nos. 1966/AHD/2012, 2765/AHD/2015, 199/AHD/2016 and 2706/AHD/2016 involving identical facts and circumstances have deleted the penalty levied by the AO vide order dated 13 May 2022. The relevant extract of the order is reproduced as under:
“75. We have heard the rival submissions made by the respective parties; we have also perused the relevant materials available on record.
Since we have already decided the quantum appeals preferred by the assessee granting relief of the claim of deduction under 80IA(4) of the Act, the penalty arising out of the said quantum proceeding automatically become infructuous.
However, we would like to note that the Ld. CITA has deleted the penalty on the ground that the assesses’s claim is a bona fide one, all the particulars were fully disclosed in the return itself, supported by audit reports under Section 80 IA(7) in Form No. 10 CCB and none of the particulars or figures are found to be untrue or wrong. The disallowance is made only due to a bona fide difference of opinion between the assessee and the Department as to whether the assessee is a ‘developer’ or ‘contractor’. It further appears that relying on the decision passed in the matter of Reliance Petro Products Pvt. Ltd., reported in 322 ITR 158 (SC) the penalty was deleted by the Ld. CIT(A) which according to us is without any ambiguity so as to warrant interference. We, thus, find all the appeals preferred by the revenue as above as devoid of any merit and therefore, dismissed.”
11 ITA No.90/ahd/2019 13. In view of the above and after considering the facts in totality, we find no infirmity in the order of the learned CIT-A and therefore the appeal filed by the Revenue is hereby dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 8th June, 2022 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad, dated 8/06/2022 vk*